Macau Gaming Law series part 9: National security – a get out of jail free card for the government?

Welcome to the ninth in a series of articles on the Macau gaming law IAG is publishing throughout the month of March and in early April:

Article 45(1)(1) of the new draft gaming law states, “The Chief Executive may … terminate a concession for the operation of games of chance in casinos … due to threat to national security and security of the Macau SAR …” This is a new provision of the law, having not appeared in the current Macau gaming law (number 16/2001), enacted some 20 years ago.

It’s unsurprising to see a national security provision appear in the draft law, given the way the world has changed in recent years. But before commenting on this specific provision, please indulge me in some musings by way of background …

The past nearly 40 years from the late 1970s to the mid 2010s has seen a stratospheric rise in globalization characterized by flourishing economic and trade, technological and even cultural inter-connectivity. But over the past seven years or so geopolitical tensions have amplified, with the proliferation of political and social polarization in the west, the growing strength of major emerging economies such as those of the BRICS (Brazil, Russia, India, China and South Africa) nations, and most notably the incredible rise in wealth, power and global influence of China.

The business world abhors rising tensions between nations. But history tells us that tensions always rise whenever there is a major shift in economic and global influence. This is precisely what has been occurring in recent decades – an inexorable soft and hard power shift from west to east. This shift has been peaking in recent years as the “Asian century” has indisputably become well and truly upon us.

Against this backdrop, national security has been forefront in the minds of national leaders. The latest conflict in Ukraine has served to bring this into clearer view. Suddenly NATO – previously considered by some to be almost anachronistic – has new resolve. Similarly, China – clearly the number two economic powerhouse in the world and rapidly closing the gap – has more to lose than it once did and has acted to enhance its national security apparatus, including its military presence in the region.

Much as it has with many aspects of life, the COVID-19 pandemic has served to accelerate and intensify these developments. One of most telling outcomes from COVID – for the business world at least – has been the shock to global supply chains. Who can forget the desperation of the west to source ventilators from China in the early weeks of the pandemic, or the logjam of container ships loitering off the US west coast for up to a month waiting to unload their cargo, having traversed the Pacific in mere weeks.

“Economic decoupling” is a phrase now being quietly uttered by international economic commentators. We’re seeing a backsliding of decades’ worth of hard-won economic victories from globalized trade. The US has been reducing its reliance on China for medical equipment and even the daily necessities of life. The conflict in Ukraine has seen Europe looking to wean itself off Russian oil and gas. Global sanctions against Russia have seen the isolation of that country – some even calling it a pariah state. China, too, is becoming more and more self-reliant and assertive. The great diaspora of Chinese students to western countries like Australia, Canada, the US and the UK for their universities studies is on shaky ground.

Just as “travel broadens the mind”, this economic decoupling and waning of people-to-people links does the exact opposite. Mistrust can breed. Hawkishness and “matters of national security” become one of the paramount considerations in government policy matters.

Now, back to Macau. While the SAR does have a high degree of autonomy, it is indisputably – and rightly – aligned with the PRC in matters of national security. As explained in the opening paragraphs of part 5 of this series, 20 years ago Macau looked to international operators to liberalize, modernize and improve its casino gaming industry. Macau’s first Chief Executive Edmund Ho knew Macau could no longer lean on Portugal – or China for that matter – for government revenue and the new SAR needed to stand on its own two feet.

Those international operators – initially the Galaxy/Sands partnership and the world-renowned Wynn Resorts, then followed by MGM and Melco, also saw previous-monopoly operator SJM lift its game. As a cohort, the sextet has been wildly successful – surely way beyond anything Ho could have imagined back at the turn of the century. Putting aside macro level geopolitical tensions, on a micro level here in Macau the combination of east and west has seen a stable, secure, reliable and successful casino gaming industry with considerable diversification into non-gaming tourism and leisure offerings. Everybody has learned to live with each other. The Macau IR industry reminds me of a successful married couple that is neither the husband nor the wife but something new formed from the fusion of the two.

Given this success, along with the fact there are no obvious local companies with the financial or operational capabilities to run a Macau IR, maintaining the status quo – with international operators – makes sense. No foreign company operating in Macau in its right mind would dream of any action that even vaguely smacked of a threat to the security of Macau or the national security of China as a whole.

It therefore seems concerning that the new gaming law offers no definition of “threat to national security” or “threat to the security of the Macau SAR”. For the purposes of article 45(1)(1), who is to determine what is such a “threat”? The government? The DICJ? The PRC? A less than sincere government of the day could arguably use this national security provision as a “get out of jail free” card to indiscriminately disqualify any concessionaire it suddenly took a disliking to. As has been said in the past, one man’s terrorist is another man’s freedom fighter.

But to be fair, a national security provision is perfectly understandable, especially in the context of rising global tensions. The issue is just with the application of it. This could easily be solved by clarifying the new law by defining such a threat in terms of a concessionaire which (or perhaps a concessionaire with a key employee who) had been convicted by a Macau court of breaching a security related law – perhaps as a result of some act of sabotage, terrorism, sedition or similar. Such a clarification would go a long way to calm the nerves of the international investment community, not to mention companies looking to invest billions of dollars in Macau in the future.

The tenth article in this series will be published later this week.

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